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seemingly gone for now , the UK has looked at other ways to foster interest in alternative pools of liquidity through regulatory divergence .
MiFID II is an EU regulation , however Brexit has given the UK leeway to amend some of these rules . For example , the UK ’ s Financial Conduct Authority ( FCA ) has made several regulatory changes in a bid to increase dark pool trading in the UK .
Earlier this year , the watchdog lowered the large-in-scale ( LIS ) thresholds for dark pool trading to ¤ 15,000 , meaning that in the UK if a transaction is above ¤ 15,000 , it can trade in a dark pool . In the EU , the minimum threshold for using a dark pool is ¤ 650,000 , now significantly higher compared to the UK .
“[ The UK ’ s lower LIS threshold ] potentially makes it easier for non- EU firms to trade EU stocks in UK dark pools like Turquoise Block Discovery UK or Cboe LIS UK ,” says Anish Puaar , European market structure analyst at Rosenblatt Securities .
The move by the FCA comes at a time when the EU is continuing to discourage dark pool trading in the bloc . In the MiFID II review , EU regulators made it clear that they remained steadfast on restricting dark trading to push volumes onto more transparent , lit venues .
As the EU clamps down on dark pool trading and the UK works towards making UK-based dark pools more attractive for trading in EU stocks , the door is potentially open for the return of a small portion of volumes lost by UK trading venues post-Brexit .
“ The implication is that the UK creates a more liberal market structure for trading EU stocks in the dark ,” adds Puaar .
Dark pool trading volumes at Turquoise Plato shifted almost entirely to its Amsterdam entity in the first few days of trading after Brexit .
“ The biggest change in routing behaviour has been the relative proportion of dark trading that we have seen migrate in the first month ,” says Bradley . “ On 4 January , about 90 % of anonymous trading on Turquoise Plato was executed in Amsterdam . At the end of January , that proportion is now up towards the mid-nineties .”
The impact of amendments to the LIS thresholds by the FCA on the EU ’ s stance on dark pool trading is yet to become clear .
“ By the UK taking this position the EU could decide to rethink the dark pool reforms it is currently considering as part of the MiFID II review ,” explains Puaar . There is also the potential for the UK to amend its listings requirements to make UK capital markets look more attractive to new businesses and start-ups .
“ We ’ ve always believed companies start small , they grow , and they mature but when you look at the listing and capital requirements , they all need capital at some point in time ,” adds Haynes . “ We tend to have a regulation which is one size fits all , but you don ’ t send a toddler to university .”
While the UK and the EU are looking to agree upon a memorandum of understanding that will set out terms for future cooperation in financial services by the end of March , whether this will be an extensive an agreement is yet to be seen .
For now , the UK is on its own in terms of fostering interest in its financial markets post-Brexit . With this newfound solitude , the UK will likely focus on exploring options that were perhaps otherwise out of reach during its membership in the EU in what could potentially the UK ’ s second Big Bang .
" Britain has ‘ taken back control ’ which is what I keep hearing politicians talking about , while Europe is actually taking back their markets ."
ALASDAIR HAYNES , CEO , AQUIS EXCHANGE
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